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Long-term real dynamic investment planning

Gerrard, R. J. G. ORCID: 0000-0002-8932-8752, Hiabu, M., Nielsen, J. P. ORCID: 0000-0002-2798-0817 & Vodička, P. (2020). Long-term real dynamic investment planning. Insurance: Mathematics and Economics, 92, pp. 90-103. doi: 10.1016/j.insmatheco.2020.03.002


When long-term savers plan for retirement they need to know their investment prospects in terms of real income (Merton, 2014). While inflation has traditionally been considered as a complication in financial analysis and financial practise, we obtain enhanced predictability and model fit if the real returns are targeted in conjunction with earnings-by-price minus inflation as predictor. For this latter case, we propose an investment strategy of updating the simple classical Merton proportion as we go along. This simple strategy is very close to the complicated theoretically optimal solution but has comparably much lower parameter uncertainty.

Publication Type: Article
Additional Information: © 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Long-term Investment, Forecasting Returns, Nonmyopic Strategy, Optimal Investment, Strategy, Econometrics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Departments: Bayes Business School > Actuarial Science & Insurance
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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